2012: Netflix signs blockbuster deal to stream Disney movies

In this film publicity image released by Disney, Chris Hemsworth portrays Thor, left, and and Chris Evans portrays Captain America in a scene from "The Avengers." (AP Photo/Disney, Zade Rosenthal, File)

In a move to put its streaming video service on par with the likes of premium cable services such as HBO and Showtime, Netflix (NFLX) on Tuesday announced an exclusive deal with Disney.

As part of the deal, Netflix will snatch the pay-TV rights to Disney's movies away from Starz. Starting in 2016, Netflix will have the right to stream Disney movies mere months after they are in theaters, a right that studios usually reserve for HBO and other subscription cable movie channels.

The deal marks one of the first times a major Hollywood studio has granted such distribution rights to a streaming video provider. Netflix will also get the right to stream some of Disney's older movies immediately and, beginning next year, will get the rights to stream its direct-to-video releases.

"For us, this is a really big deal," said Pauline Fischer, Netflix's vice president of content acquisition, in a blog post on the company's website.

Netflix did not disclose the financial terms of the deal or its duration. But investors cheered it anyway. The company's stock closed regular trading up $10.65, or 14 percent, to $86.65. In midday trading, it rose as high as $88, its highest point since April 23, when a company warning about potentially disappointing subscriber growth sent Netflix shares tumbling.

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The deal with Disney will return to Netflix some of the content it lost when it failed to renew its agreement with Starz. Netflix reportedly offered Starz some $300 million but couldn't come to terms. Since then, the company has repeatedly emphasized that its subscribers watched relatively little content from Starz.

Netflix's streaming service has been criticized for not having a great enough diversity of content, and in recent quarters its subscriber growth has slowed. Clearly the company needs to add to its streaming offerings, said Brett Sappington, a research director at Parks Associates, a consulting company.

"We're going to see more of this in future," he said of Tuesday's deal with Disney.

In other efforts to beef up its streaming content, Netflix will be offering new episodes of the television show "Arrested Development" and is developing "House of Cards," an original series starring Kevin Spacey.

Michael Pachter, a financial analyst who covers Netflix for Wedbush Securities, questioned the wisdom of the Disney deal -- and investors' reaction to it.

To get exclusive access Disney's content, Netflix almost certainly outbid Starz -- Pachter guesses it will pay in the neighborhood of $300 million annually. That's the same amount it reportedly was considering paying Starz last year, but the Disney deal gives it access to only half the content that Starz offered because Starz also has access to movies from Sony Pictures, Pachter noted.

He complained that investors don't seem to have a clue about how to value the company. They bid up Netflix's stock after it turned down the Starz deal because they seemed to think it showed that the company was being economically sensible, he said. But now they're bidding up the stock after it signed an even worse deal.

"This is exactly why I have a sell (rating) on Netflix," Pachter said. "(Wall) Street keeps rewarding them when they do economically stupid deals."

Contact Troy Wolverton at 408-840-4285. Follow him at Twitter.com/troywolv.